Africa is Pick n Pay’s second engine of growth
Pick n Pay planned to open its first stores in Nigeria and Ghana within the next two years, the company said this week.
Last year, Pick n Pay said it would open its first store in Ghana as early as this year. However CEO Richard Brasher said the company’s entry into Ghana was being held up by property developers who had failed to proceed with their plans because Ghana’s economic growth had slowed.
From 2014 to last year, the economy in the country only grew between 3.6% and 4%. However, things are looking up as the International Monetary Fund forecasts that Ghana will expand by 7.4% this year and by 8.4% next year.
In Nigeria, Pick n Pay has agreed to partner with Nigeria Stock Exchange-listed AG Leventis. Pick n Pay will hold 51% of the operation.
Pick n Pay said its Zambian operation was affected by the slowdown in growth in the country.
In the year to the end of February, the company opened 12 new supermarkets outside South Africa, including three in Namibia, six in Zambia, one in Zimbabwe and two in Botswana.
Brasher said the rest of Africa was Pick n Pay’s “second engine of growth”. However, he cautioned that the expansion on the continent would be “measured”. “Africa is our long-term future, not our short-term future,” he said.
Alec Abraham, an equity analyst at Sasfin Securities, said Pick n Pay’s strategy for Africa made sense as the company would be measured in its approach to expanding into the continent. Many South African retailers had learnt that growing in Africa could be “treacherous”.
Shoprite could afford to be a lot more aggressive in Africa because the company had been present on the continent for 30 years, and had paid its “school fees” and learnt valuable “on-the-ground” lessons, he added.
In the year ending February, Pick n Pay’s Africa (excluding South Africa) operations generated R4.3 billion in revenue for the company and R226 million in profit. The retailer has 140 of its more than 1 500 stores outside South Africa.
Gareth Ackerman, the chair of Pick n Pay, said customers were struggling because of high inflation, rising unemployment and low income growth.
“Political disruption has made the situation more difficult, creating further uncertainty at a time when our economy is under considerable strain and unemployment remains stubbornly high. We are concerned about the effect that the recent downgrades may have on inflation,” he said.
Brasher said President Jacob Zuma’s Cabinet reshuffle and the fact that local incomes lagged behind inflation led to an increasingly stressed consumer.
“Economic growth is unlikely to accelerate for some time,” he added, and consumers were increasingly shopping around for lower prices.
A key area where Pick n Pay is looking to gain advantage is with private-label products that are owned by the retailer, which has the goods made by a contract manufacturer under its own label.
Brasher, who joined the company four years ago with the aim of turning it around, said more than 1 700 new and repackaged private-label products had been launched over the past two years.
The contribution of the private-label products to Pick n Pay’s turnover has increased by 3% since the group’s 2015 year to 18% of turnover in the year ended February.
Turning to the company’s online presence, Brasher said that Pick n Pay generated about R300 million a year in revenue from online sales.
At its Western Cape warehouse, sales grew by 30% in the year to February. A second dedicated online warehouse was operational in Gauteng.
Brasher said a new mobile device-enabled online shopping portal would be launched this year.
He cited the UK as an example of online sales growth – 10% of retail business was completed online in that country, he said.
This week, Pick n Pay released its latest set of results, which saw the company’s shares tumble. Sasfin’s Abraham said the drop in the share price was due to the company missing its forecasts, especially when it came to its revenue figures, as well as indications that the retailer had lost volume.
This loss of volume could suggest that Pick n Pay may have lost market share to its rivals, especially Shoprite’s Checkers chain, he added.
Recently, Shoprite has been a lot more aggressive in expanding the Checkers chain in up-market areas, Pick n Pay’s historic stronghold.